HEAVICAN, C.J.
DMK Biodiesel, LLC (DMK), and Lanoha RVBF, LLC (Lanoha), filed suit against Renewable Fuels Technology, LLC (Renewable Fuels), John McCoy, John Hanson, Phil High, and Jason Anderson in the Buffalo County District Court alleging fraudulent inducement. Renewable Fuels and the individual defendants filed a motion to dismiss for failure to state a claim and a motion to take judicial notice of the private placement memorandum and the subscription agreements. Both motions were granted, and DMK and Lanoha now appeal. Because the private placement memorandum and the subscription agreements are properly considered "matters outside the pleading," an evidentiary hearing was required. Accordingly, we reverse the judgment of the district court and remand the cause with directions.
Republican Valley Biofuels, LLC (RVBF), issued a confidential private placement memorandum with an effective date of May 7, 2007, seeking investors in a biodiesel production facility. DMK and Lanoha invested $600,000 and $400,000 respectively in RVBF, which was being promoted by McCoy, Hanson, High, and Anderson. Renewable Fuels is listed with the Nebraska Secretary of State as the manager of RVBF.
On August 17 and August 28, 2007, DMK and Lanoha, respectively, entered into and executed separate subscription agreements with RVBF. Paragraph 1 of the subscription agreements states, "Subscriber understands that the offering of limited liability company units ... of the Company to which this Subscription Agreement relates is being made only pursuant to the Company's Confidential Private Placement Memorandum dated May 7, 2007, including the exhibits attached and any supplements thereto...." It further states in paragraph 4.c. that "[s]ubscriber has relied solely upon the information furnished in the Memorandum and Subscriber has not relied on any oral or written representation or statement, except as contained in the Memorandum, in making this investment." The private placement memorandum itself states that "[n]o person has been authorized to make any representation or warranty, or give any information, with respect to RVBF or the units offered hereby except for the information contained herein."
Renewable Fuels promptly filed a motion to dismiss and a motion to take judicial notice. Shortly thereafter, the individual defendants filed similar motions. The motion to take judicial notice requested the district court to take judicial notice of the confidential private placement memorandum for RVBF and the subscription agreements executed between RVBF and DMK and Lanoha, respectively. All three documents were attached as exhibits to the motion to dismiss.
In response, DMK and Lanoha filed a motion to continue hearing on the defendants' Neb. Ct. R. Pldg. § 6-1112 (rule 12) motions to allow discovery. The motion stated, first, that "[j]udicial notice is not permitted by Neb Rev Stat § 27-201 et seq." Second, the motion primarily argued that taking judicial notice would convert the rule 12 motion into a summary judgment motion.
The district court granted the motion to dismiss and the motion to take judicial notice. The court noted that the private placement memorandum and the subscription agreements were "an intricate part of the pleadings whether they are set forth by [DMK and Lanoha] or not." The district court thereafter received the exhibits and considered the exhibits for purposes of the motion to dismiss. On the motion to dismiss, the district court found "as a matter of law that [DMK and Lanoha] are not allowed to proceed with their causes of action for fraud, deception and misrepresentation arising from events occurring prior to the execution of the subscription agreements." The court sustained the motion to dismiss, but allowed DMK and Lanoha to file an amended complaint based on actions of RVBF and the individual defendants after the entry of the subscription agreement that violated the subscription agreement, private placement memorandum, or the fiduciary obligations created by those documents.
DMK and Lanoha filed an amended complaint that asserted postsale fiduciary duties were owed and breached, while also seeking derivative relief. Litigation continued on the derivative claims until 2012, when the district court dismissed the amended complaint at the request of all parties. DMK and Lanoha now appeal the September 29, 2009, dismissal of the direct claims.
DMK and Lanoha allege, restated and summarized, that the district court erred by taking judicial notice, entering judgment without a proper summary judgment hearing, and dismissing the claims, because the dismissal resulted in the defendants' benefiting from the illegal sale of securities under § 8-1118(5) of the Securities Act of Nebraska.
A district court's grant of a motion to dismiss is reviewed de novo.
Statutory interpretation is a question of law that an appellate court resolves independently of the trial court.
DMK and Lanoha's main argument, found both in their motion to continue hearing on the defendants' rule 12 motions to allow discovery and in their brief, is that by taking judicial notice of the private placement memorandum and the subscription agreements, the motion to dismiss transformed into a motion for summary judgment, which required the district court to hold a hearing. We agree.
Because a rule 12(b)(6) motion tests the legal sufficiency of the complaint, not the claim's substantive merits, a court may typically look only at the face of the complaint to decide a motion to dismiss.
As a threshold matter, we must determine whether the district court's decision to judicially notice the private placement memorandum and the subscription agreements transformed the motion to dismiss into a motion for summary judgment. Specifically, we must determine whether these documents are considered to be "matters outside the pleading."
We have previously held that a court may take judicial notice of matters of public record without converting a rule 12(b)(6) motion to dismiss into a motion for summary judgment.
The Eighth Circuit has held that rule 12(b) is not permissive, because it mandates that "`[t]he motion shall be treated
For purposes of a motion to dismiss, "`the court generally must ignore materials outside the pleadings, but it may consider some materials that are part of the public record or do not contradict the complaint, as well as materials that are necessarily embraced by the pleadings.'"
RVBF and the individual defendants argue that the private placement memorandum and the subscription agreements are integral to and embraced by the complaint. Specifically, they contend that when a securities offering is made pursuant to written memorandum, a plaintiff investor "is not permitted to assert a securities action without reference to the offering memorandum."
In support of their argument, RVBF and the individual defendants cite the Second Circuit's decision in Cortec Industries, Inc. v. Sum Holding L.P.
The sole issue decided by the Second Circuit was whether the warrant, the offering memorandum, and the stock purchase agreement could be considered when ruling on the motion to dismiss the complaint for failure to state a claim. The Second Circuit held that the district court could rely on the documents without converting the motion to dismiss into a motion for summary judgment. In support, the Second Circuit stated that
The Second Circuit concluded:
The Second Circuit acknowledged that "in drafting their complaint plaintiffs relied upon documents transmitted to them by defendants, though they neglected to attach these papers to, or incorporate them by reference in, the complaint."
In contrast, in BJC Health System v. Columbia Cas. Co.,
The Eighth Circuit concluded that the three documents provided by Columbia with the motion to dismiss constituted
Here, our independent review of the complaint reveals that DMK and Lanoha did not rely on the private placement memorandum and the subscription agreements in drafting the complaint. In fact, the complaint never mentions either the private placement memorandum or the subscription agreements. Nor does the complaint rely on the rights or obligations outlined by the documents. This is not the paradigmatic case of a party's seeking to enforce a contract and not attaching the contract to the complaint. Cortec Industries, Inc. is unhelpful in our analysis, because that was a case in which "[p]laintiffs sought damages and rescission of a stock purchase agreement allegedly entered into in violation of the securities laws, civil RICO, and the common law."
Here, the fraud and misrepresentations relied upon by DMK and Lanoha were oral statements made before the execution of the subscription agreements. The complaint does not allege that the documents themselves were fraudulently or negligently misrepresented.
RVBF and the individual defendants argue that we should not allow plaintiffs to artfully draft a complaint so as to avoid referencing a document on which the lawsuit hinges. In this instance, the plaintiffs may have purposefully avoided referencing the private placement memorandum and the subscription agreements. However, their choice not to reference the documents and, more important, their choice to not embrace the documents were not improper. Even if DMK and Lanoha had chosen to reference the private placement memorandum and the subscription agreements in the complaint, it would not have changed the outcome of this case. Mere reference, without more, to the private placement memorandum and the subscription agreements would not be enough to establish that the complaint embraces those documents.
Because both the private placement memorandum and the subscription agreements are not clearly embraced by DMK and Lanoha's complaint, when the district court accepted and took into consideration the private placement memorandum and the subscription agreements, the court took into consideration matters outside the pleading. This transformed the motion to dismiss into a motion for summary judgment. Pursuant to § 25-1332, DMK and Lanoha were entitled to a summary judgment hearing and no hearing was held.
DMK and Lanoha also argue in their brief that the private placement memorandum and the subscription agreements
Finally, DMK and Lanoha argue that the Securities Act of Nebraska prevents a securities seller who engages in fraud from using a written contract to effectuate the fraud committed. In other words, DMK and Lanoha contend that the substantive law protects securities purchasers from sellers by refusing to enforce exculpatory clauses in prospectuses, private placement memorandums, or subscription agreements. This issue was not addressed by the district court. An issue not presented to or decided on by the trial court is not an appropriate issue for consideration on appeal.
The district erred by granting the motion to dismiss. When the district court took judicial notice of the private placement memorandum and the subscription agreements, the motion to dismiss transformed into a motion for summary judgment, which requires an evidentiary hearing. No such hearing was held.
REVERSED AND REMANDED WITH DIRECTIONS.
McCORMACK, J., participating on briefs.
WRIGHT, J., not participating.